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fraudulently preparing and filing a 1987 Federal tax return
claiming a refund under the name of Chris Arias. Mr. Beretta
received $2,000 for his part in the scheme. Gross income
includes funds derived from legal and illegal sources. Rutkin v.
United States, 343 U.S. 130 (1952). Accordingly, the $2,000
should be included in petitioner's income for the 1988 taxable
year.
Issue 4. Capital Losses
We next must decide whether petitioner is entitled to
claimed capital losses for the years at issue. On his 1987 tax
return, petitioner claimed a $2,558 capital loss from the sale of
stock in the Strong Total Return Fund. We have already decided
that petitioner was the owner of the mutual funds for Federal tax
purposes. At trial, petitioner presented documentary evidence
substantiating the claimed loss. We find that petitioner is
entitled to the $2,558 capital loss. Sec. 165(f).
Petitioner claimed capital losses of $300, $3,000, $3,000
and $2,400 from bad debts for the tax years 1987, 1988, 1989, and
1990, respectively. The bad debts were the result of payments
made for liabilities to creditors of the restaurants for which
Mr. Beretta was a guarantor. Payments by an individual on a
guaranty of a debt which are not then repaid to the guarantor may
give rise to a bad debt deduction if the debt to the guarantor is
worthless. Tolzman v. Commissioner, T.C. Memo. 1981-689; sec.
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